Reference

Christian Gollier, Discounting, Inequality and Economic Convergence, Journal of Environmental Economics and Management, vol. 69, January 2015, pp. 53–61.

Abstract

The aim of this paper is to examine the impact of inequalities and economic convergence on the efficient discount rate when international credit and risk-sharing markets are inefficient. We consider an economy in which initial consumption levels and growth expectations are heterogeneous. In the benchmark case in which relative inequalities are permanent and relative risk aversion is constant, inequalities do not affect the discount rate. We derive necessary and sufficient conditions under which permanent inequalities reduce the discount rate. We also show that the anticipation of economic convergence raises the efficient discount rate when relative prudence is larger than unity.

Keywords

Prudence; Concordance; Discount rate; Climate change;

JEL codes

  • E43: Interest Rates: Determination, Term Structure, and Effects
  • G11: Portfolio Choice • Investment Decisions
  • G12: Asset Pricing • Trading Volume • Bond Interest Rates
  • Q54: Climate • Natural Disasters • Global Warming

Research partnership

Scor Chair

Research theme

Risk Attitude